Investing in a real world with mean-reverting inflation
AbstractPeople are concerned about maintaining purchasing power in times of risinginflation. We formulate investment objectives in terms of real wealth,assuming investors derive utility from the number of goods they can buy withtheir monetary wealth. We derive closed-form solutions for the portfoliochoice problem of constant relative risk averse investors, under theassumption that inflation rates are mean-reverting. We consider alternativespecifications for the inflation compensation offered by the availableassets, in order to study the effect on portfolio choice and welfare.Moreover, we study the added value of inflation-indexed bonds for theinvestor in our real framework.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 9960/A.
Date of creation: 17 Jul 2003
Date of revision:
Contact details of provider:
Web page: http://www.few.eur.nl/few
Optimal asset allocation; Inflation-protection; Intertemporal hedging demand; Predictability;
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anneke Kop).
If references are entirely missing, you can add them using this form.